Brown will be forced to raise taxes

GORDON BROWN would be forced to raise taxes after the General Election to pay for his lavish spending plans, leading City economists have warned.

PricewaterhouseCoopers said the Chancellor's intention to increase public spending by almost twice the rate of economic growth would push Britain into a deficit of at least 1% of national wealth in 2004.

However, there is also 'a serious risk' of a deeper and more prolonged downturn in the US, which would 'hit the UK hard', it added.

This would mean the cash shortfall was up to three times larger. Either way, if Labour is re-elected, the Chancellor will not have enough money for his plans, PwC said in its latest UK economic update.

This means Brown will either have to put up taxes substantially or make drastic cuts in his plans to pump an extra £43bn into health, education, transport and pensions over the next three years.

John Hawksworth, head of macroeconomics at PwC, said: 'In any event. the Chancellor will not be able to continue to increase spending above the trend rate of growth beyond 2003-4 without raising taxes.'

Brown wants to raise Government spending by an average of 3.7% over the next three years. But the annual growth rate of the economy is expected to remain at around 2.25%. He has repeatedly insisted there is no danger of taxes having to go up to pay for his plans.

PwC's report is the latest of several by experts questioning Brown's strategy. Many economists agree with Tory Shadow Chancellor Michael Portillo that Brown cannot continue to raise spending much faster than economic growth without forcing up taxes and interest rates, thus damaging industry.

The Chancellor has argued that a moderate level of borrowing to finance public investment is 'both justifiable and sustainable'. But PwC warned: 'This clearly depends on whether UK economic growth broadly matches the Chancel-lor's forecasts over this period.'

If he is wrong and growth is 1% lower than expected, which is 'not inconceivable,' the deficit will probably be more than 3% of gross domestic product by 2003-4.

Brown's spending increases on health, education, transport and pensions account for 40% of public spending, or around £180bn. If the deficit climbs, 'this will require some hard choices about how to find the compensatory cuts in the other 60% of public spending if taxes are not to rise', the report added.

It warned that this could be difficult as the most readily achievable cuts - in areas such as defence spending, unemployment-related benefits and debt interest - have already been made.

Portillo said: 'There is growing concern that Gordon Brown's course for Government spending is imprudent. This report confirms that it is unsustainable and would lead to more stealth taxes. If Labour were re-elected taxes would rise again and again.'